Managing Inventory in an Unpredictable Economy Is a Delicate Balancing Act

As the economy struggles with a slow and unpredictable recovery, consumer and business spending behavior is anything but predictable. As companies look to maintain their bottom line without creating excess waste, gauging how much to increase production to meet market demands without creating excess inventory is becoming a more complex task. In fact, a recent study by IDC Manufacturing revealed that there is currently $900bn of waste in global manufacturing supply chains. In order to successfully navigate this "gray" period, manufacturers need to optimize supply chain operations and manage the issue of excess inventory.

Implementing New Solutions

The aspiration of a low-cost supply chain capable of producing an accurate order every time remains elusive for many manufacturing enterprises. Now, as supply chains become increasingly longer and global, managing numerous moving parts that include material, equipment and people around the world is a complex undertaking. This complexity, coupled with unpredictable spending behavior, is among the many reasons for inefficiency.

Manufacturers rarely see stable business conditions, so implementing a level of flexibility in their processes is paramount to survival. Most modern manufacturers operate in a world where change is the only constant - customer demand changes weekly, commodity prices fluctuate daily, and dependable suppliers are forced out of business with little or no notice. In this environment, simply running a lean production operation will not suffice. Manufacturers need to take lean principles a step further and provide the ability to execute quickly and appropriately to constantly changing business conditions without ratcheting up operating costs.

That flexibility will come through deployment of IT systems that not only quicken the pace at which business processes are executed, but also have the ability to analyze if those processes are working well enough to support the company's business goals.

Managing Inventory

One area in which IT systems can considerably improve a manufacturer's flexibility is through the management of inventory movement, specifically parts replenishment.

The volatility of businesses and consumer spending plagues the supply chain with over-production and excess inventory. The result of producing to speculative demand or supposed economic batches is both time consuming and costly. Automating parts replenishment is especially vital in industries such as automotive, aerospace, and industrial manufacturing - where large numbers of parts are routinely moved through production lines in just-in-time fashion. In these industries, the challenge is making sure the right parts, in the right quantities, are always moving to the right locations at the right times.

Kanbans and ERP systems are two of the current methods that address the issue of parts replenishment for companies that employ lean principles. They can be inherently inefficient when not utilized properly. A kanban process is generally used to manage the flow of material both into and around the plant. However, there are always missteps when these processes are manually handled. While kanbans have the ability to tell a plant when parts are short, they do not provide a way of collecting and analyzing the data of specific lines or parts - only being able to improve processes with labor intensive data gathering and key stroking.

ERP systems are used to manage the business processes and better track the flow of materials. However, very few manufacturers get the full value out of those systems. In fact, a recent Aberdeen Group survey revealed that companies only use 28 percent of the functionality available in their current ERP systems. Manufacturers working with older systems lack the ability to send data across functional areas within an enterprise or out into the extended supply chain. ERP systems are great solutions for data storage but not necessarily for execution level activity that drives the plant floor processes.

With most companies now operating global supply chains, the need to fully utilize and integrate their parts replenishment processes and methods is critical to addressing the issue of managing inventory levels and has a sizable impact on the overall health of their business.

Adhering to Lean Practices

In order to transform their bottom line, companies need to utilize real-time locating systems (RTLS) to support their lean manufacturing processes to properly address inventory management.

Technology supporting lean methodologies is a key component to reducing these wastes and ultimately creating cost savings through improved inventory management. The growing trend of implementing lean application solutions is helping many manufacturers secure the data and visibility needed to optimize and automate processes to more effectively manage inventory. Kanbans, lean loop replenishment sizing applications, Web EDI and real-time asset management solutions, help manufacturers become more agile and responsive to unpredictable and ever-fluctuating customer demand.

Given the current difficult conditions for much of the manufacturing industry, lean thinking strikes a chord for manufacturers as it promises to reduce costs, improve quality and transform the bottom line by eliminating waste in every area of the value stream such as factory management and supplier networks. Lean thinking is a pragmatic approach to inventory management by eliminating work in process and overproduction in the supply chain. When supported by technology, this can help manufacturers get one step closer to attaining the intangible, low-cost supply chain with better managed inventory levels every time.